The contraction in the economy of the United States to an annual rate of 2.9 percent in the first three months of 2014 has caused the IMF to predict just 1.7 percent growth this year, the weakest since the recession ended five years ago. Introducing the new forecasts, the IMF's chief economist Olivier Blanchard (pictured) said: "The recovery continues, but it remains a weak recovery, indeed a bit weaker than we forecast in April." The reduction also reflects a number of downgrades to the outlook for several other individual economies. The IMF referred to 'geopolitical tensions' in Russia – principally fall out from the Ukraine conflict – downgrading its growth prediction for the year to 0.2 percent from an earlier World Economic Outlook forecast of 1.3 percent, and one percent in 2015.
In Brazil, higher interest rates, which the central bank raised in an attempt to curb inflation, have put a brake on business and consumer spending, the IMF said. It now predicts that Brazil's economy will expand by only 1.3 percent, down from its previous estimate of 1.9 percent. It also marked down its forecast for Brazil's economy in 2015 to from 2.6 percent to just two.
However a large part of the downgraded forecast is explained by temporary factors, such as harsh winter weather and a slowdown in inventory restocking in the United States. In a separate report published on Wednesday, the IMF said it expects the US economy to recover in the April-June quarter to a 3.5 percent annual rate. Growth should remain above three percent in the second half of the year, it said.
The UK economy is markedly bucking the trend, having regained pre-recession levels of output, and the IMF has increase its 2014 growth prediction from 2.8 to 3.2 percent. The British Chancellor George Osborne commented: "Today the IMF has upgraded their 2014 forecast for the UK by more than any other major economy. The government's long-term economic plan is working. But the job is not yet done and so we will go on making the assessment of what needs to be done to secure a brighter economic future."
Spain may not have emerged quite so completely from its slump but its unemployment rate fell to its lowest level in two years in the second quarter, data showed yesterday, lifted by strong job creation in the services sector and adding to hopes of a sustained economic turnaround. Spain's IMF forecast has also been revised upward by three percentage points this year to 1.2 percent and by six in 2015 to 1.6 percent
Consumer spending in China has declined as the government has tried to cut lending levels, the IMF said. Growth in China will likely be 7.4 percent this year, down from the IMF's 7.6 percent forecast in April. It will slip further, to 7.1 percent, in 2015. However Beijing has taken steps to support growth, spending more on roads and infrastructure and cutting taxes for small businesses. This should bolster the Chinese economy in the second half of this year, the IMF believes.
